Stocks Falling into Final Hour on Financial Sector, Economic Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Financial longs and Computer longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is bearish as the advance/decline line is substantially lower, most sectors are declining and volume is light. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 7.85% and is elevated at 46.17. The ISE Sentiment Index is low at 100.0 and the total put/call is high at 1.11. Finally, the NYSE Arms has been running very high most of the day, hitting 2.89 at its intraday peak, and is currently 1.62. The Euro Financial Sector Credit Default Swap Index is rising 6.06% today to 102.0 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is rising 3.2% to 206.67 basis points. The TED spread is down 9.15% to 109 basis points. The TED spread is now down 357 basis points in just over three months. The 2-year swap spread is falling 3.23% to 52.50 basis points. The Libor-OIS spread is falling 8.91% to 98 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .58%, which is down 217 basis points in just over six months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .06%, which is unch. today. Volume is light again on today’s sell-off with a high NYSE Arms reading. However, the stock and bond market’s reactions to today’s news are negatives again. The most economically sensitive, emerging market and financial shares are under the most selling pressure. The conditions are right for a sharp snapback rally to materialize at any time, but a positive catalyst must materialize. Nikkei futures indicate a -290 open in Japan and DAX futures indicate a -26 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, financial sector pessimism and economic pessimism.